Tuesday 10 September 2019 12:35 pm

Investors engaged with environmental and governance issues, but audit and trust lag behind

The UK’s largest investors are most concerned about environmental and corporate governance issues in the companies they invest in, but need to “step up” in other areas, new research has found.

Audit, corporate reporting, trust, and reputation were all identified as areas where the UK’s top asset managers and owners have been “less engaged” in a report published today by EY.

Read more: Poor broker performance reviews leaving fund managers in the dark

The report analysed investors’ levels of engagement with and guidance given to the firms they invest in across 25 key areas, with scores assigned based on “the depth of their reported stewardship activity” for each area.

Asset managers and owners assessed in the report include Blackrock, JP Morgan Asset Management, and Fidelity, as well as British Airways’ and BT’s pension schemes.

“Trust in business needs all three elements of the financial ecosystem to be working effectively: stewardship, governance and reporting,” said Hywel Ball, a UK managing partner at EY.

“Asset managers and asset owners have a vital role to play in setting the standards expected from the companies they invest in,” Ball continued.

Environmental issues including climate change and sustainability were ranked as the areas of highest priority for the investors – the 20 biggest asset managers and 10 asset owners to have signed the UK Stewardship Code.

Climate change was the single highest-ranked issue, and was described in the report as “a major investor priority”. Asset managers had reported focusing on the environment “in large part because of the risk of business disruption”, it said.

Corporate governance emerged as the second highest area of stewardship engagement – with investors particularly focused on executive remuneration and leadership composition, both of which have been under the spotlight in recent months.

By contrast, issues surrounding audit and assurance as well as trust and reputation were the areas with the lowest engagement from asset owners and managers.

EY said it expects audits’ scores to improve in future as the fallout from some high-profile audit scandals in the UK pushes the issue to the forefront of investors’ minds.

Read more: When the fund stops: Why times are tough for UK asset managers

“While it’s encouraging to see more engagement on issues such as climate change, the research shows there’s a need for deeper dialogue between business, investors, and society on other important issues such as supply chains, purpose, and trust,” said Ball.

“Public reporting is essential to providing transparency to the market, enabling greater accountability and trust in business,” he added.

Main image credit: Getty